Federal Reserve Beige Book: U.S. Economy Expanding Moderately; Inflation and Policy Uncertainty Remain Risks

The Federal Reserve’s latest Beige Book indicates that the U.S. economy remains generally stable at the beginning of 2026, but persistent inflation, a slowing labor market, and policy uncertainties pose new risks.

This report, published ahead of each monetary policy meeting, compiles economic observations from businesses and industries across the United States. It is based on surveys conducted by 12 regional Federal Reserve banks before February 23, and thus does not yet reflect recent major events, such as the Supreme Court’s ruling overturning some tariff policies or the latest Middle East conflicts.

The report shows that the U.S. economy demonstrated a relatively solid outlook early in the year, but businesses remain cautious about future prospects. Companies surveyed by the New York Fed reported a rebound in consumer spending, but many households are still reducing large purchases due to uncertainty. Manufacturers in the Philadelphia region said that unclear economic outlooks and recent winter storms sweeping the Northeast continue to challenge production and orders.

The Richmond Fed noted that in the current uncertain economic environment, more employees are choosing to stay in their current jobs rather than seek new opportunities. Logistics companies, while seeing some decline in uncertainty compared to before, are still closely monitoring demand changes and strictly controlling inventories, only purchasing goods with confirmed sales.

Regarding employment, the Beige Book indicates that most regions experienced stable staffing levels at the start of the year, but the labor market lacks significant vitality. Many companies reported that demand weakness and rising operating costs have limited their hiring plans. The Dallas Fed found that most firms in both the service and manufacturing sectors currently have no plans to expand hiring.

On the West Coast, some companies are reducing staff through layoffs or natural attrition. Although there are no widespread signs that AI has significantly reduced labor demand, some firms are exploring automation and AI to improve efficiency. The St. Louis Fed pointed out that a manufacturer in Memphis is shifting capital budgets toward automation equipment, as ongoing hiring difficulties make robots and industrial AI reliable ways to maintain capacity and quality.

The report also mentions that increased immigration enforcement in the Minneapolis area has had a noticeable impact on the local economy. A landscaping company said that during enforcement actions, many employees resigned or stopped working. Although the company tried to recruit replacements, it was nearly impossible to find suitable labor. Meanwhile, enrollment in a workforce program providing English training for new immigrants dropped by 43%.

Local consumer activity has also been affected. Retail, hospitality, and leisure industries reported decreased demand, with businesses in the Twin Cities attributing this to the tense atmosphere caused by immigration enforcement. A construction company also said that enforcement actions impacted project progress, though cold weather was also a factor.

Inflation remains a common concern among businesses. The Beige Book shows that all 12 Federal Reserve districts reported rising prices, with 8 districts experiencing moderate increases and 4 districts seeing slight rises. Companies generally cited rising costs for insurance, energy, and raw materials, along with tariffs driving up production costs.

A food company in New York stated that some firms are coping with cost increases by maintaining prices but reducing product package sizes. Another company said that rising costs forced it to increase credit lines to sustain operations.

A firm in Chicago indicated that this year, more of the tariff costs will be passed on to customers. Last year, the company shared tariff costs with clients, but this year, it will require buyers to bear the full burden.

The Dallas Fed noted that service sector prices are rising more mildly, while prices for tangible goods are increasing more noticeably. In contrast, the Atlanta Fed observed that inflation pressures are easing, with overall prices remaining flat or only slightly rising, and consumer resistance to price increases growing.

Overall, the Beige Book reflects that the U.S. economy remains steady at the start of 2026, but growth momentum is uneven. Businesses face cost pressures and policy uncertainties, while the labor market, though stable, lacks vitality, leaving the economic outlook full of uncertainties.